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Why doesn't Bitcoin return lost coins back into the block reward?
What could be the consequences of many bitcoins being lost out of circulation if people lose their wallets?

Okay, the first question has to do with stale bitcoins. Say people lose their private keys. Over time it just keeps building, and a large portion of the 21mm bitcoins are immobilized. What happens?

The same scenario can occur for a different reason, say people start putting bitcoins in their IRAs and there millions of bitcoins held immobile. Also, how do I know that in 20 years they still will be good. Maybe the network truncates the transaction log and my part falls off.

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    Most of this is covered here, here and here (see "linked questions" to the right for readable links). Should we close this as a duplicate?
    – D.H.
    Nov 6 '11 at 16:59
  • @D.H. I vote to close this one.
    – ThePiachu
    Nov 6 '11 at 18:55
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    @JOSEPH. Voting to close. Of the four questions you asked all have already been asked and answered. Please search for existing questions before making a new question. This ensures the Q&A remain useful to the larger community not just the original asker.
    – DeathAndTaxes
    Nov 7 '11 at 5:29
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If coins are lost, they are gone forever. This only hurts the person who lost the coins... and in fact it makes the rest of the coins more scarce and thus more valuable long term.

Because Bitcoins are divisible down to eight (or more) decimal places, it really means there are 21,000,000 x 1,000,000 = 210,000,000,000,000 units (and this can be divided even further with changes to the code. In practice, this means that one can always have a "small enough" unit of Bitcoin to buy tiny items.

So if X number of Bitcoins are lost, the rest simply become more valuable, and unless a coffee costs less than .000000000000001 BTC or something, there will not even be a need to alter any code. If we were using those tiny units, a convenient name would be given to them and life would be fine and dandy.

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    It's 21,000,000 x 100,000,000 = 2,100,000,000,000,000.
    – Meni Rosenfeld
    Nov 6 '11 at 18:02
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In short: yes there is a mechanism, and that mechanism is called "leave them where they are".

So no worries on the IRA, and say good bye to the coins belonging to irretrievably lost private keys.

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  • I don't even know where my private keys are. The wallet software just has one key and I presume that is the public key. Is the private key hidden somewhere in the program not accessible?
    – shoeless joe
    Nov 8 '11 at 17:47
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Accidents do not happen, they are caused. Private keys will not be lost if a proper backup strategy is used. The total bitcoins lost will probably be much less than you think.

It is generally agreed that the best course of action is to keep lost coins lost. The only way they can be found again is if and when it becomes feasible to break the current digital signature algorithm.

The network does not truncate unspent outputs, you can verify this by checking the source code. You need to have faith that the network will reject harmful changes such as starting to truncate. However, if a weakness in the DSA is found and a new DSA becomes standard, you may want to move your savings coins to a new address.

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  • I think if and when governments start to crack down on bitcoins then many more will be lost. Also there is a potential for large disasters, like earthquakes in Japan and terrorist bombings. What if people find it convenient to print their bitcoins and use them like bills, that would increase the amount of loss coins.
    – shoeless joe
    Nov 8 '11 at 17:50
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Coins are never "deleted", there is a small chance that someone generating a key in the future will generate a conflict and recover those lost coins.

Bitcoins are infinitely divisible, so the network can run on a fraction of a Bitcoin just as well as on all of them. There is no problem of liquidity.

The problem with hoarding is the same as with any finite resource (like gold) - people hoard money, value of money goes up, people dump their hoarding, get rich, value goes down, cycle repeats.

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  • There is a big difference with gold. Gold is never destroyed, someone will eventually find gold coins hidden somewhere.
    – shoeless joe
    Nov 8 '11 at 17:45
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    If you give gold to a chemist or a physicist with enough funds, they can technically turn it into any other element by fusion, fission and the like. If you start generating a lot of keypairs, eventually (although that can be decades away if you are an optimist) you will generate a conflict and be able to spend someone's coins. Probably you'd be more successful if you'd start digging for gold in your back yard with a shovel, although either way yields worse results than going to work and earning money to buy gold or Bitcoins.
    – ThePiachu
    Nov 8 '11 at 20:01
  • Dude, could you please edit your post and remove my name from it? Thank you much.
    – shoeless joe
    Nov 12 '11 at 5:10
  • StackExchange doesn't allow anyone to edit posts.
    – ThePiachu
    Nov 12 '11 at 11:04

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